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it discovered a transaction that would become known as the Omega
transaction.
A. The Omega Transaction and Petitioner's Discovery of
Misleading Financial Reporting by G�nther’s Management
In the Omega transaction, G�nther transferred machinery to
Omega-Reed GmbH (Omega), a no-asset corporation owned by one of
G�nther’s former employees, in exchange for Omega’s promise to
produce switches for G�nther at a reduced cost and for a promise
to pay in the future. Despite Omega’s tenuous financial
condition, no security agreement was executed in connection with
the transfer. In an apparent effort to hide G�nther’s true
financial condition, G�nther’s management originally reported a
profit of DM 2,900,000 on the Omega transaction and booked the
amount due as a receivable from Omega in G�nther’s books and
records for FYE April 30, 1992.11 Any profit, however, was
contingent upon the receipt and sale of Omega products to
G�nther's customers over a multiyear period, and thus was
extremely speculative.
After petitioner discovered the Omega transaction in July
1992, Flint's president, Paul K. Lackey, Jr., dispatched senior
management to Germany immediately, and Mr. Lackey soon followed.
11The alleged profit was backed out and recharacterized in
G�nther’s commercial report for FYE April 30, 1992, and
litigation was filed to recover the machinery. Although G�nther
eventually recovered at least some of its machinery, the
machinery had been stripped of its operating controls and
essentially was worthless by the time the machinery was
recovered.
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